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NLRB NOW ATTACKING NON-COMPETITION AGREEMENTS

Many employers, union and non-union, require employees to enter into non-competition and confidentiality agreements.  These provisions typically prohibit employees from using confidential company information outside their work relationships, and prohibit employees from competing against the employer during and for a certain period of time after their employment terminates.  Most employers would not consider the NLRB to play a role in such agreements, but now that situation has changed.  Minteq International, Inc., 364 NLRB No. 63 (7/29/16). 

In Minteq, the employer required new employees to sign a Non-Compete and Confidentiality Agreement (NCCA) as a condition of employment.  The NCCA bound employees to most of its provisions on the date it is signed until at least eighteen (18) months after their employment ends.  The NCCA prohibited an employee from working for another company that might have any connection to the employer’s business during his employment and for eighteen (18) months afterwards.  The "confidential information" provision of the NCCA was specific, but ended in the phrase: "any other information which is identified as confidential by the company." 

The union considered the NCCA to be an unlawful work rule because it was made a condition of employment without giving the union notice and an opportunity to bargain about its implementation.  The NLRB agreed, as the provision was a type of work rule and a mandatory subject of bargaining.  The NLRB also rejected the employer’s argument that it had no obligation to bargain over the NCCA because the requirement that individuals sign the NCCA applies to "applicants" and is a "hiring practice" excluded from the bargaining obligations imposed by the Labor Act.  Instead, the NLRB found that the NCCA is not the equivalent of a drug test, a qualifications requirement, or a "method of processing applications" that affects prospective employees as "applicants" without having any impact on terms and conditions once the applicants become employees.  The provisions of the NCCA did not become effective until, at the earliest, the individuals became employees, and affects terms and conditions of employment.

The NLRB also rejected the employer’s argument that the management rights clause gave the employer the right to implement the rule.  Instead, the NLRB finds the management rights provision was not sufficiently specific to show that the union "clearly and unmistakably" waived its right to bargain over implementation of the NCCA.  That is, the Board will not infer the waiver of the statutory right from general contractual provisions, including generally worded management-rights clauses.

The NLRB also rejected two other employer defenses.  The Board rejected the employer’s argument that the union waived its right to bargain over implementation of the NCCA by failing to request bargaining during subsequent negotiations.  The employer never gave the union notice that it was requiring new employees to sign the NCCA, and by the time the union learned of the requirement from an employee, it had already been unlawfully implemented for more than two years.

The employer also argued that the complaint was barred by the six-month statute of limitations in Section 10(b) of the Labor Act.  The Board finds the provision inapplicable because the six-month limitation period begins to run only when the union has clear and unequivocal notice, either actual or constructive, of a violation of the Labor Act.  The Board credited testimony that the union first learned of the NCCA after the employer invoked it against a former employee and the union thereafter timely filed an unfair labor practice charge with the Board. 

The Board did rule in favor of the employer on the confidentiality of information provision.  While viewed in isolation, a prohibition on releasing "any . . . information which is identified as confidential by the company" would clearly be overbroad, and thus unlawful, the Board considered that the effect of the prohibition does not stand alone and must be read in context.  The context would lead employees reading the phrase to reasonably understand that it refers to the preceding examples of proprietary information and trade secrets, not information related to employees’ wages or working conditions.

The case also addressed another provision of the NCCA called the "interference with relationships" rule, which prohibited solicitation or encouragement of any customer or supplier of the company to terminate or otherwise alter their relationship with the company in an adverse manner.  The Board found that this rule placed restrictions on employees’ ability to communicate with the employer’s customers and restricted employees’ efforts to improve the terms and conditions of employment through channels outside the immediate employee-employer relationship.   Since these efforts could include asking customers to boycott the employer’s products or services, and could also encompass other forms of appeals to the employer’s customers, a provision on this type of conduct was found to be an unlawful restriction of employees’ Section 7 rights.

Editor’s Note: As a result of this case and related cases, both union and non-union employers will have to consider the application of the Labor Act in implementing non-competition and confidentiality rules.  In the case of a union employer, such rules would normally be subject to giving the union notice and an opportunity to bargain prior to implementing such rules.  It should be noted that some employers have actually negotiated non-competition and confidentiality provisions into their collective bargaining agreements.  In the case of non-union employers, such employers will have to consider whether such rules are overbroad and thus may be struck down by the NLRB even in the case of a non-union employer.


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